New York, December 11, 2018 -- Moody's Investors Service ("Moody's") affirmed
the Baa3 long-term local and foreign currency deposit ratings of
Panama-domiciled BAC International Bank, Inc (BAC),
and changed the outlook on the ratings to negative from stable.
Moody's also affirmed the bank's baa3 standalone baseline
credit assessment (BCA) and adjusted BCA.
BAC is domiciled in Panama and offers bank services across Central America
through its subsidiaries. The bank is controlled by Colombia's
Banco de Bogotá S.A. (deposit ratings of Baa2 negative
outlook, BCA of ba1).
The following ratings were affirmed:
Issuer: BAC International Bank, Inc
Baseline credit assessment, baa3
Adjusted baseline credit assessment, baa3
Long term local and foreign currency deposit ratings, Baa3,
outlook changed to negative from stable
Short term local and foreign currency deposit ratings, Prime-3
Long and short-term foreign currency counterparty risk ratings,
Baa2 and Prime-2
Long and short-term counterparty risk assessments, Baa2(cr)
and Prime-2(cr)
Outlook, Changed to negative from stable
RATINGS RATIONALE
Moody's said that the change in BAC's ratings outlook to negative
reflects rising asset risks in parts of the loan book that are most exposed
to weakening operating conditions, including Costa Rica and Nicaragua.
These two countries respond for more than a third of BAC's loans.
On the other hand, the ratings also incorporate BAC's steady
profitability and the important buildup of reserves and capital buffers
that help mitigate potential losses resulting from volatile economic growth
and fiscal challenges in its core markets in Central America.
BAC's consolidated nonperforming loan (NPLs) ratio rose to a still
low 1.4% as of September 2018, from 1.2%
in September 2017. At the same time, the NPL ratio at BAC's
Costa Rican subsidiary increased marginally to 1.7% from
1.6%. However, loan restructurings in that
market doubled to 1.1% of loans from 0.5%,
and non-annualized charge-offs rose to 2.9%
of loans from 1.6%, indicating still seasoning asset
risks. This is partly mitigated by a robust coverage of NPLs with
reserves, at 2.3 times, above BAC's already high
consolidated figure of 2.1 times.
In addition, asset risks will be higher in Nicaragua, where
the economy will continue to contract in 2019 after the recent political
turmoil. The NPL ratio there more than doubled to 2.6%
as of September 2018 from 1.2% in September 2017,
albeit the impact on BAC's consolidated figures is limited because
loans to Nicaraguan borrowers represent a modest 7.5% of
its loan portfolio. Loan exposures to El Salvador, Honduras
and Guatemala appear to be stable supported by steady economic growth
and financial variables.
While there has been a conservative deceleration in loan growth across
some of BAC's core markets, higher NPL ratios overall will
likely dent BAC's earnings, although Moody's expects
profitability buffers to remain robust. During the first nine months
of 2018, the bank's return on tangible banking assets stood
at 1.9%, well above Latin America's average,
supported by ample net interest margins and robust fee income.
We anticipate the bank's return on tangible assets to converge towards
1.7%, in light with growing loan loss provisions,
which inched higher to 39% of pre-provision income as of
September 2018, from 37% as of September 2017.
The robust earnings stream will continue to support BAC's good capitalization.
The bank's tangible common equity (TCE) ratio stood at about 13%
as of September 2018, aided by contained dividend payouts and prudent
credit expansion. Furthermore, all operating subsidiaries
are subject to and do comply with higher minimum total capital requirements
than the 8% minimum applied to BAC per Panamanian regulations,
a credit positive. However, Moody's anticipates that
regulators in each particular country would likely prevent capital transfers
among subsidiaries to maintain stability within their respective banking
systems.
BAC is funded by a broad base of customer deposits, consistent with
its well-established banking franchise, which significantly
reduces refinancing and repricing risks. Some 70% of the
bank's assets are funded with deposits, with about 40%
of that amount being sourced from individuals. As a result,
market funding needs remain contained at around 15% of total assets.
This, combined with ample liquidity buffers at a quarter of the
balance sheet as of September 2018, further supports BAC's
financial flexibility.
Moody's assumes a very high probability of affiliate support to
BAC from Banco de Bogotá S.A. in the case of need.
This assumption is based on BAC's relevance in Banco de Bogotá
S.A.'s regional footprint and earnings generation,
illustrated by the bank's significant contribution to the parent's profitability.
However, BAC derives no rating uplift from affiliate support because
Banco de Bogotá S.A.'s ba1 adjusted BCA is one notch
below BAC's baa3 BCA.
WHAT COULD CHANGE THE RATINGS UP/DOWN
The ratings could be downgraded if asset risk weakens materially and on
a sustainably basis, while profitability and capitalization decline
amidst further deterioration of operating conditions. Upward rating
pressure is limited at this juncture in light of the negative outlook.
However, ratings could be stabilized if asset quality remains overall
stable, coupled with continued robust profitability and good capital
buffers.
The last rating action on BAC International Bank, Inc was on 21
June 2018.
The principal methodology used in these ratings was Banks published in
August 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Georges Hatcherian
Asst Vice President - Analyst
Financial Institutions Group
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 1 888 779 5833
Client Service: 1 212 553 1653
M. Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
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U.S.A.
JOURNALISTS: 1 212 553 0376
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